‘Although Inadequate, Increase In Minimum Support Price Is Welcome’

Mumbai:Under pressure from farmers’ groups across the country due to falling prices and a glut of produce, the Bharatiya Janata Party-led National Democratic Alliance government announced a hike in the minimum support prices (MSP) of kharif (monsoon) season crops in July 2018. It claimed this was a “historic decision for farmers”.

Modi government's historic decision for farmers, minimum support prices (MSPs) for all kharif crops of 2018-19 season increased. pic.twitter.com/7HayzD6ccD

However, the new MSPs do not meet the recommendations made by the M.S. Swaminathan-chaired national commission on farmers that suggested a ‘C2+50%’ formula to calculate MSPs--50% more than the weighted average cost of production, which includes the imputed cost of capital and rent for land cultivated, even self-owned land--which it said would provide stable and adequate income to farmers and alleviate farm distress. This was the formula that farmer-protesters across the country had supported.

The government’s ‘A2 +FL’ formula takes into account only paid-out costs plus an imputed value of unpaid family labour, which does not take into account all the costs incurred, does not provide for a profit, and hence leads to lower MSPs. The committee's recommendation of C2+50% has not been met for any crop, while the Swaminathan recommendation of 50% return over cost is satisfied only in case of three crops: bajra (pearl-millet), arhar (pigeon-pea) and urad (black gram), The Indian Express reported on June 22, 2018.

Madhura Swaminathan, professor and head of the economic analysis unit at the Indian Statistical Institute, Bengaluru, and chairperson of the M.S. Swaminathan Research Foundation (MSSRF), Chennai, says although the MSPs are inadequate, any increase is welcome and will help farmers to some extent. Such measures ahead of an election year and promises to double farmers’ income by 2022 will only be meaningful if they are supported by structural changes in agriculture, she says.

Swaminathan works on issues pertaining to food security, agriculture and rural development. She co-edited a recently published book on small producers in different agro-ecological regions of India titled ‘How Do Small Farmers Fare?’. It examines the “socio-economic characteristics of small farmers in relation to other strata of rural population”. She was a member of the central government’s High Level Panel on Long Term Food Security.

In an interview with IndiaSpend, Swaminathan talks about the challenges facing Indian agriculture including low MSPs and farm income, her disagreement with Aadhaar-enabled food security in the public distribution system (PDS), and support for the latest scientific advances in agriculture.

Considering that nearly 80 million small and marginal farmers in India get insufficient MSP, what is your view on the latest MSP announcement?

In economics, when you consider economic or opportunity costs, all inputs are taken into consideration. There is no logic in taking the cost of family labour but not of self-owned land. There seem to be a lot of people who know nothing about cost but are discussing what should be the cost or what production cost is. The literature talks about two concepts which are clearly defined; one is paid-out cost and the other, economic cost. The justification given for an A2 +FL formula [which the government has used] is all wrong.

Now, in India, poverty has been defined in different ways. One approach has come to be known as the policy definition. It essentially tries to ensure that a poverty line is set at a level where it is feasible, taking into consideration resource constraints. I appreciate the fact that there are limitations on resources, which means it must be made clear upfront that there is only a certain amount that can be spent on farmers. It is not based on economic principles of cost or definition and so on, but on a different basis.

I welcome the increase announced because average incomes of farmers are quite low in India. Incomes vary based on factors such as the nature of irrigation and the type of crop. In our research we found that in all villages nearly 20%-30% of small farmers, in some cases nearly 50%, made losses or negative incomes. So, if we were to generalise, there are a large number of farming households that are not able to cover their costs of production. We defined [in the book How Do Small Farmers Fare?] small farmers as those who have two hectares of irrigated land or six hectares of unirrigated land, whereas the government defines it as two hectares of irrigated or unirrigated land. Although there are other measures that need to be taken, I welcome the increase despite it being inadequate.

Finance Minister Arun Jaitley isreported to have said in July 2018 that if small farms become a part of farmer producer organisations (FPO), it will help double farm income by 2022. Is the doubling of farm income a realistic target and are FPOs the way to go to achieve this? What are the structural changes required to improve income?

Within a cropping region, there is huge variation in income. At MSSRF, we have started or helped start one FPO each in Kerala, Tamil Nadu and Odisha. From our experience, it is quite difficult to enhance incomes. For example, managing the accounts in a group of farmers without hand-holding or some sort of support from an external agency is difficult because it takes time.

Even after that, when farmers approach banks for loans, they may receive a few lakhs. But if you want improved processing that can add value, they would need a few crores. I don’t see how, with the present structure and the resources that FPOs have, they can be a game changer.

We also see aggregation, where farmers collect the produce and sell in bulk, attracting better prices and returns. But then there are price fluctuations and falls that affect farmers. There are issues of shelf life, processing and packaging, and limited market reach. FPOs need capital investment and management. We can’t expect farmers to set up the structure on their own. FPOs can be successful at the village level, but their scope is limited under present circumstances.

In a recent meeting of a sub-group of chief ministers and the NITI Aayog on coordination between Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and agriculture held on July 12, 2018, there has been a suggestion to use MGNREGA funds for farm labour. Do you believe that this can be done, considering that many farmers seek work under MGNREGA, and could it be beneficial?

On private farms, I think, this measure will become another subsidy for large farmers. MGNREGA has experienced issues like wage arrears in different parts of the country. MGNREGA is primarily an employment scheme, and the moment we tie it up with other objectives such as expecting the works to lead to afforestation or help in Swachh Bharat, we are expecting too much from it.

Almost a decade ago, in West Bengal, MGNREGA funds were being used for farm work on farms which were collectives of marginal and small farmers, not of individual farmers. So, we cannot say a blanket no to the proposal, but if it is private farms, it would not be useful.

India has the fifth largest crop area under a genetically modified (GM) crop, Bt cotton. It has been reported that the Dalwai committee on doubling farmers’ income suggested that India should adopt the latest GM technologies in important non-food crops by ensuring transparency and social inclusion for wider public acceptance. What is your perspective on this suggestion?

I am not anti-GM, whether food or non-food. I am for scientific advance. GM is outdated, gene editing is the next big thing. The first gene-edited corn will be introduced in the U.S. very soon. We need to look at region and cropping pattern and analyse problems there.

At MSSRF we have developed two high salt-tolerant varieties of rice but have not been able to test them due to the moratorium. With climate change, there will be factors to consider such as sea-level rise and the sort of cultivation that can be undertaken in our coastal regions. If we can get gene-edited rice it would be useful. It must be region- and problem-specific.

Aadhaar in PDS was expected to reduce leakages and avoid exclusion errors. But there have been cases of starvation deaths reported due to non-linkage of ration cards to Aadhaar numbers in states such as Jharkhand. What is the social cost when policy measures aggravate the problem?

I am totally against it. In India we are using biometric for everyone, while in the U.S. it is not used for people of the age of 80 and above [for instance]. Further, we have a huge manual labour force with whom fingerprinting is a problem. Aadhaar is hugely problematic in a country like India.

In the PDS, when we try narrow targeting the result is that people are worse off. This has been established globally. Bank accounts have been misused, so have ration cards and Aadhaar. A state like Kerala did well in the initial years of the PDS. Everyone in a village was literate, knew their rights and had knowledge about the PDS. The ration shops could not remain closed in Kerala because people would react to the issue. It had nothing to do with biometrics, Aadhaar, or smart cards. Technology is useful, but I think solving an issue of corruption is not going to be possible with technology.

Starvation deaths are the extreme cases, but the other cost of excluding those who should not be will be the malnourishment of future generations of children. There are studies which show that lifestyle diseases are more likely in people who were malnourished as children. As a country we should be ashamed of our malnutrition rate. We need to do everything that is required to fix malnutrition in India.

Fingerprint authentication is being used in PDS to plug leakages in states such as Karnataka. In some regions prone to circular migration, the beneficiaries must come back to their villages to get food grains due to portability-related issues in authentication. How efficient do you find biometric authentication and portability for PDS in view of such issues?

Migrant workers have always been worse off. Their ration card always contains their address in their village. People have written about how urban poverty is different from rural, pointing out that urban areas require food kitchens and not ration shops. We have governments trying out ‘Amma kitchens’ and ‘Indira canteens’ where cooked food is served. Migrant workers are unlikely to buy ration and cook.

The other issue is with the people who remain in the village. In the old system, the ration card would be there, and they would be able to use it. Now there are glitches in some places. Ideally, the workers should be able to use it to access it the same way we use a debit or credit card. Considering that we will continue to have migrant workers in the future, we need to figure out a way of providing them access to nutritious food which, perhaps, may not be through the PDS.

A Nielsen report has noted that the recent increase in rural demand could be attributed to farm loan waivers. While farm loan waivers are a drain on the exchequer, state governments seem to go for them for political gains. Is there a way around loan waivers until structural changes in agriculture are made?

The credit system in India must be reformed. This government seems to think that privatisation of public-sector banks is the way to go. This will not address the issue. There is a steady decline in providing access to rural credit. One-time loan waivers are only going to banks and not affecting the flow of funds to farmers, although a certain proportion of farmers have a book write-off. This neither helps banks nor small and marginal farmers. This cannot be a long-term approach. We need a major rehaul of agricultural credit.

Due to huge variation in income in rural areas, you see someone earning Rs 6,000 a month while a large farmer with a dairy farm or sprinkler irrigation and a few tractors would be making Rs 10 lakh a month in the same village. There are pockets of growth. We have a growing domestic remittance economy due to the rural crisis, although we do not have enough data on it. Migrants are sending back their hard-earned money to their villages, which contributes to higher purchases when compared with agricultural income.

(Paliath is an analyst with IndiaSpend.)

We welcome feedback. Please write to respond@indiaspend.org. We reserve the right to edit responses for language and grammar.

Mumbai:Under pressure from farmers’ groups across the country due to falling prices and a glut of produce, the Bharatiya Janata Party-led National Democratic Alliance government announced a hike in the minimum support prices (MSP) of kharif (monsoon) season crops in July 2018. It claimed this was a “historic decision for farmers”.

Modi government's historic decision for farmers, minimum support prices (MSPs) for all kharif crops of 2018-19 season increased. pic.twitter.com/7HayzD6ccD

However, the new MSPs do not meet the recommendations made by the M.S. Swaminathan-chaired national commission on farmers that suggested a ‘C2+50%’ formula to calculate MSPs--50% more than the weighted average cost of production, which includes the imputed cost of capital and rent for land cultivated, even self-owned land--which it said would provide stable and adequate income to farmers and alleviate farm distress. This was the formula that farmer-protesters across the country had supported.

The government’s ‘A2 +FL’ formula takes into account only paid-out costs plus an imputed value of unpaid family labour, which does not take into account all the costs incurred, does not provide for a profit, and hence leads to lower MSPs. The committee's recommendation of C2+50% has not been met for any crop, while the Swaminathan recommendation of 50% return over cost is satisfied only in case of three crops: bajra (pearl-millet), arhar (pigeon-pea) and urad (black gram), The Indian Express reported on June 22, 2018.

Madhura Swaminathan, professor and head of the economic analysis unit at the Indian Statistical Institute, Bengaluru, and chairperson of the M.S. Swaminathan Research Foundation (MSSRF), Chennai, says although the MSPs are inadequate, any increase is welcome and will help farmers to some extent. Such measures ahead of an election year and promises to double farmers’ income by 2022 will only be meaningful if they are supported by structural changes in agriculture, she says.

Swaminathan works on issues pertaining to food security, agriculture and rural development. She co-edited a recently published book on small producers in different agro-ecological regions of India titled ‘How Do Small Farmers Fare?’. It examines the “socio-economic characteristics of small farmers in relation to other strata of rural population”. She was a member of the central government’s High Level Panel on Long Term Food Security.

In an interview with IndiaSpend, Swaminathan talks about the challenges facing Indian agriculture including low MSPs and farm income, her disagreement with Aadhaar-enabled food security in the public distribution system (PDS), and support for the latest scientific advances in agriculture.

Considering that nearly 80 million small and marginal farmers in India get insufficient MSP, what is your view on the latest MSP announcement?

In economics, when you consider economic or opportunity costs, all inputs are taken into consideration. There is no logic in taking the cost of family labour but not of self-owned land. There seem to be a lot of people who know nothing about cost but are discussing what should be the cost or what production cost is. The literature talks about two concepts which are clearly defined; one is paid-out cost and the other, economic cost. The justification given for an A2 +FL formula [which the government has used] is all wrong.

Now, in India, poverty has been defined in different ways. One approach has come to be known as the policy definition. It essentially tries to ensure that a poverty line is set at a level where it is feasible, taking into consideration resource constraints. I appreciate the fact that there are limitations on resources, which means it must be made clear upfront that there is only a certain amount that can be spent on farmers. It is not based on economic principles of cost or definition and so on, but on a different basis.

I welcome the increase announced because average incomes of farmers are quite low in India. Incomes vary based on factors such as the nature of irrigation and the type of crop. In our research we found that in all villages nearly 20%-30% of small farmers, in some cases nearly 50%, made losses or negative incomes. So, if we were to generalise, there are a large number of farming households that are not able to cover their costs of production. We defined [in the book How Do Small Farmers Fare?] small farmers as those who have two hectares of irrigated land or six hectares of unirrigated land, whereas the government defines it as two hectares of irrigated or unirrigated land. Although there are other measures that need to be taken, I welcome the increase despite it being inadequate.

Finance Minister Arun Jaitley isreported to have said in July 2018 that if small farms become a part of farmer producer organisations (FPO), it will help double farm income by 2022. Is the doubling of farm income a realistic target and are FPOs the way to go to achieve this? What are the structural changes required to improve income?

Within a cropping region, there is huge variation in income. At MSSRF, we have started or helped start one FPO each in Kerala, Tamil Nadu and Odisha. From our experience, it is quite difficult to enhance incomes. For example, managing the accounts in a group of farmers without hand-holding or some sort of support from an external agency is difficult because it takes time.

Even after that, when farmers approach banks for loans, they may receive a few lakhs. But if you want improved processing that can add value, they would need a few crores. I don’t see how, with the present structure and the resources that FPOs have, they can be a game changer.

We also see aggregation, where farmers collect the produce and sell in bulk, attracting better prices and returns. But then there are price fluctuations and falls that affect farmers. There are issues of shelf life, processing and packaging, and limited market reach. FPOs need capital investment and management. We can’t expect farmers to set up the structure on their own. FPOs can be successful at the village level, but their scope is limited under present circumstances.

In a recent meeting of a sub-group of chief ministers and the NITI Aayog on coordination between Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and agriculture held on July 12, 2018, there has been a suggestion to use MGNREGA funds for farm labour. Do you believe that this can be done, considering that many farmers seek work under MGNREGA, and could it be beneficial?

On private farms, I think, this measure will become another subsidy for large farmers. MGNREGA has experienced issues like wage arrears in different parts of the country. MGNREGA is primarily an employment scheme, and the moment we tie it up with other objectives such as expecting the works to lead to afforestation or help in Swachh Bharat, we are expecting too much from it.

Almost a decade ago, in West Bengal, MGNREGA funds were being used for farm work on farms which were collectives of marginal and small farmers, not of individual farmers. So, we cannot say a blanket no to the proposal, but if it is private farms, it would not be useful.

India has the fifth largest crop area under a genetically modified (GM) crop, Bt cotton. It has been reported that the Dalwai committee on doubling farmers’ income suggested that India should adopt the latest GM technologies in important non-food crops by ensuring transparency and social inclusion for wider public acceptance. What is your perspective on this suggestion?

I am not anti-GM, whether food or non-food. I am for scientific advance. GM is outdated, gene editing is the next big thing. The first gene-edited corn will be introduced in the U.S. very soon. We need to look at region and cropping pattern and analyse problems there.

At MSSRF we have developed two high salt-tolerant varieties of rice but have not been able to test them due to the moratorium. With climate change, there will be factors to consider such as sea-level rise and the sort of cultivation that can be undertaken in our coastal regions. If we can get gene-edited rice it would be useful. It must be region- and problem-specific.

Aadhaar in PDS was expected to reduce leakages and avoid exclusion errors. But there have been cases of starvation deaths reported due to non-linkage of ration cards to Aadhaar numbers in states such as Jharkhand. What is the social cost when policy measures aggravate the problem?

I am totally against it. In India we are using biometric for everyone, while in the U.S. it is not used for people of the age of 80 and above [for instance]. Further, we have a huge manual labour force with whom fingerprinting is a problem. Aadhaar is hugely problematic in a country like India.

In the PDS, when we try narrow targeting the result is that people are worse off. This has been established globally. Bank accounts have been misused, so have ration cards and Aadhaar. A state like Kerala did well in the initial years of the PDS. Everyone in a village was literate, knew their rights and had knowledge about the PDS. The ration shops could not remain closed in Kerala because people would react to the issue. It had nothing to do with biometrics, Aadhaar, or smart cards. Technology is useful, but I think solving an issue of corruption is not going to be possible with technology.

Starvation deaths are the extreme cases, but the other cost of excluding those who should not be will be the malnourishment of future generations of children. There are studies which show that lifestyle diseases are more likely in people who were malnourished as children. As a country we should be ashamed of our malnutrition rate. We need to do everything that is required to fix malnutrition in India.

Fingerprint authentication is being used in PDS to plug leakages in states such as Karnataka. In some regions prone to circular migration, the beneficiaries must come back to their villages to get food grains due to portability-related issues in authentication. How efficient do you find biometric authentication and portability for PDS in view of such issues?

Migrant workers have always been worse off. Their ration card always contains their address in their village. People have written about how urban poverty is different from rural, pointing out that urban areas require food kitchens and not ration shops. We have governments trying out ‘Amma kitchens’ and ‘Indira canteens’ where cooked food is served. Migrant workers are unlikely to buy ration and cook.

The other issue is with the people who remain in the village. In the old system, the ration card would be there, and they would be able to use it. Now there are glitches in some places. Ideally, the workers should be able to use it to access it the same way we use a debit or credit card. Considering that we will continue to have migrant workers in the future, we need to figure out a way of providing them access to nutritious food which, perhaps, may not be through the PDS.

A Nielsen report has noted that the recent increase in rural demand could be attributed to farm loan waivers. While farm loan waivers are a drain on the exchequer, state governments seem to go for them for political gains. Is there a way around loan waivers until structural changes in agriculture are made?

The credit system in India must be reformed. This government seems to think that privatisation of public-sector banks is the way to go. This will not address the issue. There is a steady decline in providing access to rural credit. One-time loan waivers are only going to banks and not affecting the flow of funds to farmers, although a certain proportion of farmers have a book write-off. This neither helps banks nor small and marginal farmers. This cannot be a long-term approach. We need a major rehaul of agricultural credit.

Due to huge variation in income in rural areas, you see someone earning Rs 6,000 a month while a large farmer with a dairy farm or sprinkler irrigation and a few tractors would be making Rs 10 lakh a month in the same village. There are pockets of growth. We have a growing domestic remittance economy due to the rural crisis, although we do not have enough data on it. Migrants are sending back their hard-earned money to their villages, which contributes to higher purchases when compared with agricultural income.

(Paliath is an analyst with IndiaSpend.)

We welcome feedback. Please write to respond@indiaspend.org. We reserve the right to edit responses for language and grammar.

Shreehari Paliath
- Shreehari is an electrical and electronics engineer and had a brief stint at the National Aerospace Laboratories, Bengaluru. He has a master's degree in development from Azim Premji University, a post-graduate diploma from the Asian College of Journalism, Chennai, and as a writer has reported on enterprise IT and water, the latter at Arygham, a non-profit that works on such issues.